House of Commons Hansard Debates for 16 Jul 1990

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that the new and the previous systems should run in parallel, enabling a trader to receive relief on bad VAT debts by either of the two systems. The Government were not prepared to accept that. 11.45 pm

We also proposed a measure that would have reduced the waiting period for relief on bad debts from two years, which is the proposal in the Bill, to one year. That proposal was strongly supported by many small traders. On 15 May, the Economic Secretary, speaking from the Front Bench with all the authority of the Government, appeared to give our proposal a significant welcome. He said :

"Our judgment was that two years is an appropriate period of time to elapse before a company decides that a debt cannot be recovered." The hon. Gentleman went on :

"I am aware of the strength of feeling expressed in the debate and by the many organisations that have made representations to the Treasury. For those reasons, I have concluded that there may be scope for further improvement in the scheme. We shall be examining that possibility between now and Report stage."--[ Official Report, 15 May 1990 ; Vol. 172, c. 814.]

That statement clearly showed that the Government were sympathetic to our proposal for a reduction, yet there is no Government amendment before us to give flesh to that commitment.

As a result, we have tabled this amendment, which would change the period from two years to 15 months. We are being more generous to Customs and Excise than we were in our original proposal. We believe that a 15-month period would be sensible and practical and would give better relief to businesses, especially small businesses, than the Government propose. It would be entirely within the spirit of the statements by the Economic Secretary on 15 May.

I hate to chide the Economic Secretary for a failure to live up to an indication that he gave in Committee, but we wish that the Government had been true to their word and had tabled an amendment such as amendment No. 38. I commend the amendment to the House.

Mr. Beith : I support the case advanced by the hon. Member for Islington, South and Finsbury (Mr. Smith) for a more generous recognition of the problems of business in dealing with bad debts. I, too, formed the impression that the Government had taken seriously the many representations about their proposed time scale. They seemed to recognise that this matter required another look, and I am disappointed that the look has not turned into an appropriate change in the Bill.

The hon. Member made clear at an earlier stage in the Bill what a serious problem this presented to the firm that he described as "Ryder associates"- -or some such expression--if it had paid over a substantial sum in VAT to Customs and Excise at a time when an even more substantial sum remained outstanding from a company which had not paid it. He described how serious that would be, especially with present high interest rates, if the debt were spread over two years. I had hoped that the Government would recognise that this is a serious problem, and I look forward to the Minister having something to say on the subject tonight.

Mr. Ryder : In debate on what was then clause 10, in Committee of the whole House, I said that we would consider whether anything could be done to improve the

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Government's proposals on bad debt relief. The hon. Member for Islington, South and Finsbury (Mr. Smith) and the hon. Member for Berwick-upon-Tweed (Mr. Beith) were right to make their observations. I did so because of the view that some hon. Members expressed that our proposals did not go far enough.

Our proposals were a huge improvement for businesses, as is evidenced by the cost of £150 million a year that will result from the change. The decision was one of the most generous and well-received in my right hon. Friend's Budget. Any further change would be equally expensive.

Amendment No. 38, tabled by the hon. Member for Islington, South and Finsbury, seeks to reduce the waiting period from two years to 15 months. In the past two months, we have given careful consideration to whether we could justify a further change, but we have come to the conclusion that we could not. Amendment No. 38 would cost about £120 million in this financial year. That is a large price to pay for the marginal improvement that it would make to the scheme. The only way that we could afford to make such a change would be to defer the start date of the scheme to 1 January 1990 instead of 1 April 1989, as announced by my right hon. Friend in his Budget.

Mr. Chris Smith : The Economic Secretary has estimated the cost of the change that we are proposing at £120 million. How can debts that are bad after 15 months, but are recovered within the subsequent nine months--that is, debts that are not bad at the end of two years--possibly amount to £120 million?

Mr. Ryder : Those figures were calculated by Customs and Excise. We gave a figure of £150 million as the estimated cost of the proposal that we announced at the time of the Budget. The figure of £120 million estimated for this financial year is a significant sum, especially when it is judged alongside the other measures that have been introduced in the Budget, and beside some measures suggested to us in amendments during the course of the Bill. It is a large price to pay for what I would describe as a marginal improvement. If we were to accept the amendment, as I have described, it would ensure that the first claim was not made until 1 April 1991, as we had orginally planned. That would mean disappointing those who expected to be able to obtain relief in due course on debts that they incurred in the period between 1 April and 31 December 1989. That would also be too big a price for the majority of traders to have to bear to ease the position for a small minority. For that reason, and for the other reason that I gave earlier, we decided not to reduce the 24-month period on this occasion.

In view of the information that I have given the hon. Gentleman, I should be grateful if he saw fit to withdraw the amendment.

Mr. Chris Smith : The Economic Secretary has said that he believes that the cost of such a change would be £120 million. I confess to considerable scepticism about how that figure was arrived at, but it is not for me to quarrel at this stage with the Treasury's figures. Perhaps it would be best to wait and see how the new system beds down--to retain a watching brief and possibly to return to this subject in a year's time.

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I contest the view that our proposal represents purely a marginal improvement. That is not the view of business, which believes that it would be a great improvement.

We reserve the right to return to this issue. In the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 21

Care for children

Amendment proposed : No. 7, in page 11, line 20 leave out from (1)' to end of line 25 and insert

Where a benefit consists in the provision for the employee of care for a child, section 154 does not apply to the benefit to the extent that it is provided in qualifying circumstances.

(1A) For the purposes of subsection (1) above the benefit is provided in qualifying circumstances if--

(a) the child falls within subsection (1B) below.'.-- [Mr. Lightbown.]

Madam Deputy Speaker : With this it will be convenient to consider also Government amendments Nos. 8 and 9.

Mr. Boateng : We welcome the amendment, but we wish it was part of a cluster of amendments that would make the proposal more attractive and more in keeping with the needs of enterprises that are concerned to take up the option of providing these facilities for their workers. We are conscious of the fact that the most comprehensive survey available--of women who can use employer-provided creches--shows that fewer than 0.2 per cent. of them, or 198 of the 1.1 million people surveyed, could take advantage of provision of this sort. The amendments will at least provide for the category of person with parental responsibility for a child or with a child or stepchild whom he or she maintains and who is resident with the employee. That category of parent, at least, will be able to take advantage of the child care and of the associated tax relief.

However, other categories are not so fortunate. In the hope that the Government will in due course produce measures to improve on this scheme, we draw to the attention of the House the circumstances of, for instance, Sainsbury, which is a progressive employer in the retail sector seeking to provide child care for its employees. It finds itself falling foul of the requirement that the employer and employee trying to benefit from this provision have to show that the employer is involved in the management of the relevant nurseries. Sainsbury and a number of other employers in the same position find that because of the way in which their business is

conducted--Sainsbury has about 300 retail outlets--it is just not possible to provide the space at all their outlets in which to establish a creche or workplace nursery. Inevitably, such companies fall foul of this restrictive condition unless they are able so to organise their affairs--and, being primarily concerned with the provision of retail services, they are not--in such a way as also to free staff to take part in the management of day nurseries and creches. It simply is not practical.

Therefore, while welcoming the amendment, we are disappointed that it is so limited in its scope and in the relief that it brings to those who seek to expand their provision in this sector. We draw attention to that, but we shall not seek to divide the House on it.

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12 midnight

Mr. Beith : The amendments slightly modify the Government's proposals, but not in any of the ways that employers would seek to make them effective, such as some of those already listed. The prospect of large numbers of employers having to be part of the management of a day nursery so that one trading estate can have a day nursery on it is daunting. The Government have opened up the extraordinary prospect that many of the firms that wish to co-operate in opening day nurseries may have to create a cumbersome management structure simply to satisfy the Government's conditions.

I am especially mystified about the precise impact of amendment No. 8. What is the intention behind paragraph (c)? As I understand it, (a) and (b) taken together mean that the child for whom the benefit is payable has to be one for whom the employee has parental responsibility and who is resident with the employee. However, there is an alternative condition in (c), which refers to a child whom the employee maintains at his expense. I am not sure that I understand what the Government are getting at, and it would be helpful if the Minister could tell us.

Do the Government mean that a divorced or separated woman who does not have custody of her children and whose children are living with her former husband nevertheless can obtain the relief and have the children sent to the workplace nursery at her workplace? If that is the purpose, why? If the objective of the relief is to direct it towards those women who make use of workplace nurseries to enable themselves to go to work and to enter the labour market, it does not seem to make a great deal of sense, and is a variant on what is already a narrow provision.

I should be grateful if the Government could explain precisely what they mean. Although I do not really expect them to provide us, again, with reasoning about why they have not made the whole provision a great deal wider, this aspect certainly puzzles me.

Mr. Lilley : This is a technical triplet of amendments to ensure that the definition of "a child" in the original clauses is appropriate.

Following publication of the Bill, it was put to us in representations that the definition in the Bill might in certain respects be too narrow and could preclude relief in certain unusual but entirely worthy circumstances. These include, for example, a relative looking after an orphaned child where there is no formal adoption or guardianship, a step parent who has not formally adopted a child, and prospective adoptive parents before final adoption. In these cases, if the child attended a workplace nursery, strictly no exemption would have arisen for the employee. We seek to put that right.

Mr. Beith : I fully understand that that is the effect of paragraphs (a) and (b) and it is most welcome, but can the Minister please explain the purpose of paragraph (c) ?

Mr. Lilley : We are adding to "parental responsibility" a wider category to encompass any children resident with the employee and any child of the employee, including a stepchild, whom he or she maintains. I believe that that includes all the categories. Amendment agreed to.

Amendments made : No. 8, in page 11, line 32 at end insert-- (1B) The child falls within this subsection if--

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(a) he is a child for whom the employee has parental responsibility,

(b) he is resident with the employee, or

(5)In subsection 1(B) (c) above the reference to a child of the employee includes a reference to a stepchild of his.'.-- [Mr. Ryder.]

Amendment proposed : No. 6, in page 12, line 46 at end insert-- (1A) In section 154(2) of the Taxes Act 1988 for the words "section 155" there shall be substituted the words "sections 155 and 155A".'.-- [Mr. Ryder.]

Mr. Boateng : We welcome the amendment. It follows a new course. It follows from amendment No. 40 which we tabled on the Floor of the House, when the matter last came before us. The Government accepted it in principle and we are glad to see that it has been worked through into the Bill.

Amendment agreed to.

Clause 25

Donations to charity by individuals

Amendment proposed : No. 10, in page 14, line 17 after payment', insert of a sum of money'.-- [Mr. Ryder.]

Madam Deputy Speaker : With this it will be convenient to take Government amendment No. 14.

Mr. Nicholas Brown : We said in Committee that the word "payment" covered only a payment of money, yet as the Government have drafted the clause it could have a wider and, as it turned out in the course of the debate, unintended meaning. The amendments suggest that our worries were well founded. I can see that their purpose is to address our worries and to tidy up the Bill.

Mr. Ryder : I am grateful to the hon. Gentleman for drawing our attention to the problem in Committee. As a result of his observations, we have made changes and I appreciate his help. Amendment agreed to.

Amendment proposed : No. 11, in page 14, line 23, after it', insert

"or, where the donor or a person connected with him does receive a benefit in consequence of making it, the relevant value in relation to the gift does not exceed two and a half per cent. of the amount of the gift and the amount to be taken into account for the purposes of this paragraph in relation to the gift does not exceed £250'.-- [Mr. Ryder.]

Madam Deputy Speaker : With this it will be convenient to take Government amendments Nos. 12, 13 and 15.

Mr. Nicholas Brown : The amendments derive from a suggestion that the Opposition made on the Floor of the House about training and enterprise councils. In Committee, again with regard to gift aid, we said that blanket anti-avoidance clauses which ruled out tax relief whenever the donor received any benefit, however small, were too wide and that a de minimis restriction should be introduced. At the time the Government rejected the idea, but they offered to reconsider. The amendments are a welcome result of that reconsideration.

Mr. Ryder : Again, I am grateful to the hon. Gentleman for the assistance that he has provided. As a result of that assistance we have tabled the amendments.

Amendment agreed to.

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Amendment made : No. 12, in page 14, line 42, at end insert-- (3A) For the purposes of subsections (2)(e) above and (3B) below, the relevant value in relation to a gift is--

(a) where there is one benefit received in consequence of making it which is received by the donor or a person connected with him, the value of that benefit ;

(b) where there is more than one benefit received in consequence of making it which is received by the donor or a person connected with him, the aggregate value of all the benefits received in consequence of making it which are received by the donor or a person connected with him.

(3B) The amount to be taken into account for the purposes of subsection (2)(e) above in relation to a gift to a charity is an amount equal to the aggregate of--

(a) the relevant value in relation to the gift, and

(b) the relevant value in relation to each gift already made to the charity by the donor in the relevant year of assessment which is a qualifying donation for the purposes of this section.'.-- [Mr. Ryder.]

Mr. Nicholas Brown : I beg to move amendment No. 41, in page 15, line 11, leave out

shall be assessed and'

and insert

in respect of so much of them as is equal to the payment and may be deducted in computing his total income the donor shall be'. If the Government are grateful for our two small amendments to the gift aid clauses so far, I hope that they will be even more grateful for this amendment. We tackled the matter at some length in Committee so I shall not go over the issues again.

Amending the Bill along the lines that we suggest here could save Her Majesty's Government as much as £4 billion. We hold to the view that the Bill is unintentionally imperfectly drafted. We addressed that in Committee. We had a Division on the point. The Economic Secretary was somewhat hesitant to vote no. I hope that he has had time to reconsider and will accept this clarification of the intention of both the Opposition and the Government. Our aims are the same ; we are arguing about the phraseology. I believe that we have it right in our amendment and that the Bill is still flawed.

Mr. Ryder : It is a pleasure to advise my hon. Friends to accept the Opposition's amendment. Again, I appreciate the assistance that the hon. Gentleman has given us, particularly in Committee. Amendment agreed to.

Amendment made : No. 13, in page 15, line 28, leave out subsection (2)' and insert subsections (2) and (3A)'.-- [Mr. Ryder.]

Clause 26

Company donations to charity

Amendment made : No. 14, in page 15, line 46, at end insert (1A) In subsection (1) after the word "payment" there shall be inserted the words "of a sum of money".'.

No. 15, in page 16, line 8, after it', insert

and either the relevant value in relation to the payment exceeds two and a half per cent. of the amount given after deducting tax under section 339(3) or the amount to be taken into account for the purposes of this paragraph in relation to the payment exceeds £250.

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(3BA) For the purposes of subsections (3B) above and (3BB) below, the relevant value in relation to a payment to a charity is-- (

(a) where there is one benefit received in consequence of making it which is received by the company or a connected person, the value of that benefit ;

(b) where there is more than one benefit received in consequence of making it which is received by the company or a connected person, the aggregate value of all the benefits received in consequence of making it which are received by the company or a connected person. (3BB) The amount to be taken into account for the purposes of subsection (3B)(b) above in relation to a payment to a charity is an amount equal to the aggregate of--

(a) the relevant value in relation to the payment, and

(b) the relevant value in relation to each payment already made to the charity by the company in the accounting period in which the payment is made which is a qualifying donation within the meaning of this section.'.-- [Mr. Ryder.]

Clause 28

Amendment proposed : No. 16, in page 18, line 18, leave out from shall' to end of line 19 and insert

not be regarded as income for any income tax purpose'.-- [Mr. Ryder.]

Madam Deputy Speaker : With this it will be convenient to take Government amendments Nos. 19, 21 and 22.

Mr. Nicholas Brown : These amendments were promised in Committee, when the parliamentary Labour party pointed out that the TESSA legislation as previously drafted probably meant that banks and building societies could not deduct the interest they paid on TESSAs, because such interest had to be disregarded

"for all purposes of the income tax."

We thought that that meant both as regards taxing it in the recipient's hands and allowing it as a deduction for the payers. The amendments alter that so that interest will be disregarded as income for the purposes of the Taxes Act 1988, which will allow it to be deducted for tax purposes by the payers.

Amendment No. 19 alters the old save-as-you-earn legislation. Although there is an interesting and esoteric point to make in that respect, I will not make it because the hour is late.

Sir William Clark : I am in a slight dilemma because the amendments concern savings. I really want to speak to schedule 5, in respect of Government amendment No. 29, but perhaps it will be for the convenience of the House if I make my points now.

The Government have encouraged savings, and one of the worrying aspects of schedule 5 is the implications that the Inland Revenue will have the power to make random tests of bank and building society accounts. I hope that my hon. Friend the Minister will not quote MIRAS regulations at me, because they relate only to such interest in terms of loans, including relevant contractual deeds, and so on, and to persons holding such contracts or having the means of making such payments.

As to the receipt of interest from banks or building societies, now that the composite rate is being abolished and there are separate assessments for a husband and wife, I cannot comprehend why it is necessary for the Inland Revenue to have the power to undertake random tests of bank or building society accounts. If the Revenue has a suspicion that someone is not--

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Mr. George Howarth (Knowsley, North) : On a point of order, Madam Deputy Speaker. Would it not be appropriate for the right hon. Gentleman to declare one of his many and extensive interests?

Madam Deputy Speaker : I am sure that if the right hon. Gentleman has an interest to declare, he will declare it.

Sir William Clark : I do not understand the hon. Gentleman's point of order, because I have nothing to do with banks. I am a vice-president of the Building Societies Association, which is a non-commercial body, as are members of the hon. Gentleman's own party. My remarks refer to the right of the Inland Revenue to examine a person's account at random.

If the Revenue suspects that an individual is not making a proper return of his or her income, it has the right to obtain through the commissioners of income tax authority to examine any account. It is rather churlish of the hon. Member for Knowsley, North (Mr. Howarth) to accuse me of not disclosing an interest when the position that I hold is purely honorary. If the hon. Gentleman received such an honour, I would congratulate him.

I ask my hon. Friend the Minister to give a categorical assurance that if the Revenue wants to examine a bank or building society account, it must have justification for so doing--but not at random. Why should the Revenue investigate a joint bank account, for example, if there is no suspicion that the husband and wife concerned are guilty of tax evasion?

I hope that my hon. Friend can assure me that under section 482 random sampling will not take place and that the Revenue's powers will remain as they are, which means that it can only investigate where there is just cause and a reasonable chance that tax is being evaded. If we are not given that assurance, we are on a slippery slope, as the Inland Revenue acquire more and more powers. We would then have a big-brother state, which I want to avoid.

12.15 am

Mr. Ryder : My right hon. Friend the Member for Croydon, South (Sir W. Clark) has sought my assurance that we shall not undertake fishing expeditions. There is no question of such expeditions taking place. The Revenue gave banking representatives that categorical assurance when they met on 3 July. I am more than happy to repeat and emphasise that undertaking.

Sir William Clark : I wonder whether my hon. Friend can confirm that that means that random sampling is out?

Mr. Ryder : My hon. Friend referred to section 482(11)(aa) which ensures that the

"regulations may make provision for the inspection of books, documents and other records"

The terms of that provision are almost precisely the same as those that appear in the MIRAS legislation to which my hon. Friend also referred.

I understand that, in the consultations that have been taking place with the banking industry, it has emphasised that no responsibility can be placed on bank staff other than for the most minimal compliance. That means that the whole burden of compliance falls on the Revenue. It is therefore essential for audit purposes that Revenue officials have access to records and documents and are supplied with information that will enable them to identify account holders who receive interest without any tax deduction.

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